Unrelated Business Income

Unrelated Business Income

Income a nonprofit organization produces on a regular basis from a trade or business that is not connected to its ordinary operations. For example, a charity may sell t-shirts at a profit to the general public. While there are a number of exemptions, the IRS taxes unrelated business income at ordinary corporate tax rates.

Section 501(c)(9) exempts a VEBA from income tax if it provides "for the payment of life, sick, accident, or other benefits," and section 512(a)(3)(b) exempts a VEBAs income from the unrelated business income tax (UBIT) to the extent it is set aside for "the payment of life, sick, accident, or other benefits.

For management, the company assumed that future inflation for purposes of computing the tax-deductible contribution would be zero, as required by legislation, and that trust earnings would be subject to Unrelated Business Income Tax.

Representative Jake Pickle of Texas, Chairman of the House Ways and Means Committee's Subcommittee on Oversight introduced a set of proposals (request for comments 63 DER G-5, 4/1/88) to change the rules concerning Unrelated Business Income Tax (UBIT) for not-for-profit organizations, such as ACM.

This item details some charitable giving options for owners of closely held businesses, the applicable unrelated business income and self-dealing rules, and best practices for taxpayers who have these charitable desires and restrictions.

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